Question

What are the cost and benefits of a rent ceiling? Use a graph to show the effective rent ceiling.

Answer 1

Rent ceiling is the control imposed by government that prohibits owners to charge higher rent than decided by government.

The benefits are the following-

- it helps low income people to find a house at lower rent.

- consumers net income of rent increases which they can use for other purposes.

- it lowers the rent

Costs of rent ceiling are the following-

- it results in shortage of houses because at lower rent demand is higher than supply.

- it leads to lowering the quality of houses.

- it may lead to emergence of black market.

Rent ceiling is effective when rent ceiling is lower than equilibrium rent.